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Restaurant owners rejoice. The battle over extending tip-pooling arrangements to include employees who do not customarily and regularly receive tips may be reopened in the Ninth Circuit. Again.

The dispute over tip-pooling arrangements stems from § 203(m) of the Fair Labor Standards Act (FLSA), which allows employers to establish tip-pools “among employees who customarily and regularly receive tips.” Sounds straight forward, right? The problem however arises out of the fact that § 203(m) is not written in the FLSA as a stand-alone provision governing tip-pooling. Instead, when taken in context, the purpose of § 203 is to establish an exception to the FLSA’s hourly minimum wage requirement by allowing employers with employees who regularly earn tips to factor in the employees’ tips into the minimum wage calculation. This practice is known as taking a “tip credit.” As a result, there has been a considerable amount of litigation in recent years debating whether § 203(m)’s restriction of tip-pools to only those employees who customarily and regularly receipt tips should apply to all employers, even if the employer pays its employees the minimum hourly wage and does not take the tip credit.

In 2011, the Department of Labor (DOL) said yes. Earlier this year, we reported the 9th Circuit tipped its cap in deference to the 2011 DOL rule in its February 23, 2016 Oregon Restaurant and Lodging, et al. v. U.S. Department of Labor, et al. [pdf] decision. However, the split 2016 9th Circuit decision issued by a three judge panel was a surprising contradiction to its 2010 Cumbie decision [pdf] which found employers who do not take the tip credit may establish tip-pools that include non‑tip‑earning employees. The Ninth Circuit explained it overruled its Cumbie decision because the decision was grounded in legislative silence prior to the issuance of the 2011 DOL rule.

The matter was revitalized earlier this week when the Oregon Restaurant and Lodging Association along with other leaders in the restaurant and hospitality industry filed a petition for rehearing en banc (“en banc” is a fancy phrase which means a request is being made for a case to be heard by all the judges of the court (before the entire bench) rather than by a panel selected from them). The petition alleges that in ignoring established precedent, the 2016 decision creates “a class of singularly favored employees with rights greater than those of any workers in the country, contrary to what Congress intended.”

Whether intended by Congress or not, for now, employees who customarily and regularly earn tips can go about their business with the assurance that they can’t be required to split tips with those who don’t directly earn them. Of course, the key phrase in the preceding sentence is, “for now.” Stay tuned…

Compare jurisdictions: Employment: USA

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